Reciprocal interactions between the dermal papilla and the hair matrix control proliferation and differentiation in the mature hair follicle. Analysis of expression suggests an important role for FGF7 and FGF10, as well as their cognate receptor FGFR2-IIIb, in these processes. Transgenic mice that express a soluble dominant-negative version of this receptor in differentiating hair keratinocytes were generated to interfere with endogenous FGF signalling. Transgenic mice develop abnormally thin but otherwise normal hairs, characterised by single columns of medulla cells in all hair types. All structural defects and the accompanying changes of global gene expression patterns are restricted to the hair medulla. Forced transgenic expression of IGF-binding protein 5, whose expression level is elevated upon suppression of FGFR2-IIIb-mediated signalling largely phenocopies the defect of dnFgfr2-IIIb-expressing hairs. Thus, the results identify Igfbp5-mediated FGFR2-IIIb signals as a key regulator of the genetic program that controls the structure of the hair shaft medulla.